Saturday, October 31, 2009

GMAC - Another Multi-Billion Dollar Bail-Out

GMAC, the financial arm of GM, has until November 9 to demonstrate it can raise the capital needed to pass the government's stress test. Does anyone want to bet that investors will come to the rescue of GMAC by infusing billions in cash? If you think that is going to happen, I have a clunker to sell you. GMAC not only finances cars, it was big in mortgages when the bottom fell out, which led to big troubles. As such, last December, the government bailed out GMAC by giving it $5 Billion in exchange for preferred shares making the federal government an owner. By May, the government determined that GMAC was not going to make it, so President Obama, who has no business experience, wrote another check for $3.5 Billion and also gave GMAC $4 Billion in loans so it could take over providing dealer and buyer financing for Chrysler. Wait a minute, doesn't FIAT an Italian company now own Chrysler. What is that all about?

So now it appears that the Treasury is considering injecting another $2.8 - $5.6 Billion dollars into GMAC to save it from collapse because it is "too big to fail". And, or if GMAC is not there to lend money to the buyers of GM and Chrysler cars, what employees that are left at these companies presumably may lose their jobs. When oh when is all of this going to stop?

Giving more money to GM or GMAC is just money down a rat hole. Even after giving GM and GMAC more than $50 Billion dollars to "save" those companies and the jobs they represent, GM still had to file bankruptcy and thousands of employees have been laid off anyway. So what benefit did the taxpayer get from these bail-outs? President Obama spent billions on Cash for Clunkers presumably to benefit American car companies; yet given the choice most Americans who took advantage of this program bought Honda's and Toyota's. Some of those cars were made in the US; but the profit went to Honda and Toyota; not American car companies. Could it be because Honda and Toyota make better cars? When are President Obama and all the brainiacs who work for him going to understand that government intervention is no substitute for free markets and that their meddling can actually make matters worse not better.

GMAC is owned 35.4% by the US Treasury, 22% by Cerberus, 9.9% by GM, 14.6% by a Blind GM Trust and 18.1% by other investors. President Obama, or I should say tax payers, have a lot to lose if GMAC goes under. But at what point do all the bail-outs stop? Giving GMAC more money makes no economic sense. This is just another example of Obama's failed economic plan.